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California Delays Controversial Carbon Trading Program Until 2013

LA smog

California’s Air Resources Board (ARB) Chairwoman, Mary Nichols, has recently announced a 12 month delay in the state’s new carbon-trading program. The cap-and-trade program was intended to start in January of 2012, but Nichols cited the need to ensure “all necessary elements are put in place and fully functional” prior to implementation.

Her decision comes in the wake of a recent lawsuit levelled against the ARB for inadequately reviewing alternatives to the cap-and-trade system. Opponents of the new program argue that cap-and-trade is a problematic way of achieving emissions reductions. Bill Galegos, one of the plaintiffs in the case and executive director of Communities for a Better Environment, suggests that cap-and-trade is particularly susceptible to fraud.

Despite its opponents, Nichols assured the media that the lawsuit had little influence over her decision to delay the carbon trading program. She claims the decision was made to ensure that “there was no gaming of the system” and to allow extra time for a road-test of market mechanisms to gain a better grasp of how they work. She reassured a state committee that the delay would in no way affect the stringency of the new program.

However, some analysts are suggesting that the delay shows a lack of faith in the cap-and-trade program. Peter Asmus, senior analyst at Pike Research, claims the delay is a “push-back” against environmental regulation under a State Governor (Jerry Brown) who has a history of undergoing radical shifts in policy decisions.

I sincerely hope this isn’t the case because we really truly do need a price on pollution.

It doesn’t matter which system we adopt (whether it be a carbon tax or a carbon market) as long as we have an actual price on pollution. Pollution is not properly accounted for by current economic models because business practices today do not incorporate future environmental degradation in their balance sheets. And since CO₂ emissions are not properly accounted for currently, there needs to be a cost for their continued emission into the atmosphere. For instance, the EU has recently pushed for a controversial carbon market on the airlines industry.

It just so happens that the carbon market California is proposing will encourage businesses to compete for cleaner technology, which is a good thing. Under the new system, it will be more cost effective to implement more efficient/cleaner technologies than to purchase carbon permits. If implemented on a larger scale, pricing pollution could give an added boost to the renewable energy sector, by making these clean forms of energy cheaper in comparison.

But what do you think about pricing pollution? Is putting a price on carbon necessary to avert climate change? Is cap-and-trade the right way to go for California?

Image CC licensed by Steven Buss: LA smog

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